When commissions become corruption

As owners will know, superyachts aren’t run on shoestring budgets. And most of the money is spent not by them in person, but by their captains and other trusted third parties. In highly competitive marketplaces, there is an incentive to buy business with formal ‘commissions’, extravagant gratuities, or perhaps just a good old brown envelope.

In the UK giving incentives and rewards may be a criminal offence or not – according to whether it falls foul of the Bribery Act 2010. This law is widely recognised as the toughest of its kind in the world, but its principles are much the same in the rest of the world, including the US Foreign Corrupt Practices Act.

Significantly, under the Bribery Act, a crime may be committed even if the transaction takes place outside of the UK. This was already the effect of a small and little-known piece of anti-terror legislation introduced in 2001, but the globe-trotting aspects of the Bribery Act are clearer and more coherent.

Legal commission payments

To be clear, a lot of commission arrangements are perfectly legal – but it’s easy to overstep the mark, and there can be a false assumption that formality means legality.

The penalties for getting it wrong include an unusually long prison sentence and unlimited fines.

There are four key offences:

Bribing,
Receiving a bribe,
Bribing a foreign public official, and
Failing to prevent bribery.
Bribing occurs when a person offers, gives, or promises to give, a financial or other advantage to someone else in exchange for ‘improperly’ performing a function or activity. Receiving a bribe is defined as requesting, accepting or agreeing to accept such an advantage.

An activity will be ‘improperly’ performed when any expectation of good faith or impartiality has been breached, or when the function has been performed in a way not expected of a person in a position of trust.

Helpful, this now clarifies what is expected when a commission is an overt element of any business model – even where this may lead to a reduced commission.

Necessary graft and accidental bribery

So what about those instances where greasing palms to get things to happen is just the way things work?

The Act states that local practices should be disregarded when deciding on improperness – unless they form part of the written local law.

While the UK authorities are alive to the necessity of ‘facilitation payments’, official tolerance relates only to small payments, made by companies with the right bribery policies and procedures in place.

Hospitality can constitute bribery if it is disproportionately generous. In an industry devoted to luxury, it can be easy for crewmembers to confuse the lifestyle of their wealthy employers with their own – and not think twice about receiving hospitality which, seen from afar, is completely over the top.

Permitting bribery

The offence of failing to prevent bribery applies only to ‘commercial organisations’, but this includes any company or partnership carrying on any business in the UK. Conceivably, this could include yacht-owning companies managed from the UK.

With regard to the first three offences, while crimes committed outside the UK (except on board UK-flagged vessels) are normally beyond the jurisdiction of the courts, this is not the case with bribery.

Worldwide bribery investigations

Given its seriousness, it’s one of a unique group of crimes – along with terrorism and war crimes – that the authorities can, and will, investigate worldwide. All that’s needed is a ‘close connection’ with the UK – including a person of interest just being a passport holder or ordinarily resident in the UK.

The UK’s Serious Fraud Office (SFO) acts as the focal point for any allegations of corruption by UK nationals or incorporated bodies overseas, while the City of London Police has an Overseas Anti-Corruption Unit with the specific function of supporting overseas corruption investigations undertaken by the SFO.

The idea that prosecuting authorities have tentacles that can reach worldwide is not limited to the UK. As with many areas of the criminal law, most countries’ laws are broadly similar, and both European Union (EU) and United Nations (UN) conventions provide for international co-operation with regard to both the investigation and prosecution of bribery and corruption.

While the reach of US law enforcement agencies is equally global in nature, a slight difference can be seen in their approach. The US Foreign Corrupt Practices Act of 1977 allows payments to be made to foreign public officials to facilitate or expedite their performance of the duties they’re already bound to perform, even if this still violates local laws. So making a payment to an official to speed up a visa application, for example, would be acceptable.

In addition to the threat of prosecution, an owner may sue an employee or other agent for any loss – and, while a criminal conviction is not necessary for a civil action, it would be undeniable proof of civil liability.

The owner may also be able to withdraw from the contract agreed to by the agent, whether or not he or she brings an action against the agent. This option may be useful if, for example, the owner has managed to find a better deal elsewhere.

While it might seem that the authorities are coming down rather hard on corruption, it’s not because they are spearheading a moral crusade. It’s simply because corruption distorts rational product and service choices, which can ultimately prevent the cream of the industry from rising to the top, distort markets, and threaten economic growth.

Benjamin Maltby is an English barrister with consultants MatrixLloyd, providing impartial guidance on all aspects of large yacht purchase, building, ownership and operation.

Originally published: October 2008. Updated August 2012.